Strategic Management

1. 1 Strategic Management Strategy Implementation Sarayuth Saengchan, Ph.D. July 2010

2. 2 Strategy Implementation Building an Organization Capable ofGood Strategy Execution

3. 3 Strategy Process

4. 4

5. 5 Learning Objectives Gain command of what managers must do to promote successful strategy execution. Understand why good strategy execution requires astute managerial actions to build core competencies and competitive capabilities. Learn what issues to consider in organizing the work effort and why strategy-critical activities should be the main building blocks of the organizational structure. Become aware of the pros and cons of centralized and decentralized decision making in implementing and executing the chosen strategy.

6. 6 Roadmap A Framework for Executing Strategy Building an Organization Capable of Good Strategy Execution Staffing the Organization Building Core Competencies and Competitive Capabilities Execution-Related Aspects of Organizing the Work Effort

7. 7 Crafting vs. Executing Strategy

8. 8 An action-oriented, make-things happen task involving management�s ability to Direct organizational change Achieve continuous improvement in operations and business processes Move toward operatingexcellence Create and nurture astrategy-supportive culture Consistently meet or beat performance targets Tougher and more time-consuming than crafting strategy Executing the Strategy

9. 9 Implementing a New StrategyRequires Adept Leadership Implementing a new strategytakes adept leadership to Convincingly communicatereasons for the new strategy Overcome pockets of doubt Secure commitment of concerned parties Build consensus and enthusiasm Get all implementation pieces in place and coordinated

10. 10 Why Executing Strategy Is a Tough Management Job Overcoming resistance to change Wide array of demanding managerialactivities to be performed Numerous ways to tackle each activity Number of bedeviling issues to be worked out Demands good people management skills Requires launching and managinga variety of initiatives simultaneously Hard to integrate efforts of many different work groups into a smoothly-functioning whole

11. 11 Who Are the Strategy Implementers? Implementing and executing strategy involves a company�s wholemanagement team and all employees Just as every part of a watch plays a role in making the watch function properly, it takesall pieces of an organization working cohesively for a strategy to be well-executed Top-level managers must lead theprocess and orchestrate major initiatives But they must rely on cooperation of Middle and lower-level managers to see things go well in various parts of an organization and Employees to perform their roles competently

12. 12 Goals of the Strategy Implementing-Executing Process Unite total organization behind strategy See that activities are done ina manner that is conducive tofirst-rate strategy execution Generate commitment so an enthusiasticcrusade emerges to carry out strategy Fit how organization conducts itsoperations to strategy requirements

13. 13 Every manager has an active role No proven �formula� for implementing particular types of strategies There are guidelines, but no absolute rules and �must do it this way� rules Many ways to proceed that are capable of working Cuts across many aspects of �how to manage� Characteristics of the Strategy Implementation Process

14. 14 Each implementation situation occurs in a different context, affected by differing Business practices and competitive situations Work environments and cultures Policies Compensation incentives Mix of personalities and firm histories Approach to implementation/execution has be customized to fit the situation People implement strategies - Not companies! Characteristics of the Strategy Implementation Process (continued)

15. 15 The Eight Components of Strategy Execution

16. 16 Communicate the case for change Build consensus on how to proceed Arouse enthusiasm for the strategyto turn implementation process intoa companywide crusade Empower subordinates to keep process moving Establish measures of progress and deadlines Reward those who achieve implementation milestones Direct resources to the right places Personally lead strategic change processand the drive for operating excellence What Top Executives Have to Do inLeading the Implementation Process

17. 17

18. 18 The Three Components of Building anOrganization Capable of Proficient Strategy Execution

19. 19 Assembling a capable management team is a cornerstone of the organization-building task Find the right people to fill each slot Existing management teammay be suitable Core executive groupmay need strengthening Promote from within Bring in skilled outsiders Putting Together aStrong Management Team

20. 20 Selecting the Management Team:Key Considerations Determine mix of Backgrounds Experiences and know-how Beliefs and values Styles of managing and personalities Personal chemistry must be right Talent base needs to be appropriate Picking a solid management team needs to be acted on early in implementation process

21. 21 The quality of a company�speople is an essential ingredientof successful strategy execution Biggest challenge facing companies How to recruit and retain the bestand brightest talent with strongskill sets and management potential Intellectual capital, not tangible assets, is increasingly being viewed as the most important investment Talented people are a prime source of competitive advantage Recruiting and Retaining Talented Employees: Implementation Issues

22. 22 Key Human Resource Practices toAttract and Retain Talented Employees Spend considerable effort in screeningjob applicants, selecting only those with Suitable skill sets Energy and initiative Personality traits that mesh well with firm�s work environment and culture Judgment and aptitudes for learning Put employees through training programs throughout their careers Give promising employeeschallenging, interesting, andskills-stretching assignments

23. 23 Rotate employees through jobs with great content, spanning functional and geographic boundaries Encourage employees to Be creative and innovative Challenge existing ways of doing things and offer better ways Submit ideas for new products or businesses Foster a stimulating work environment Exert efforts to retain high-potential employees with excellent salary and benefits Coach average employees to improve their skills Key Human Resource Practices to Attract and Retain Talented Employees (continued)

24. 24 Building Core Competenciesand Competitive Capabilities Crafting the strategy involves Identifying the desired competencies andcapabilities to build into the strategy to helpachieve a competitive advantage Good strategy execution requires Putting desired competencies and capabilities in place, Upgrading them as needed, and Modifying them as marketconditions evolve

25. 25 Example: Intel�s Core Competence

26. 26 Example: Procter & Gamble�sCore Competencies

27. 27 Example: Ciba Specialty Chemicals Core Competence

28. 28 Example: Disney�s Core Competencies

29. 29 Example: Toyota�s Core Competence

30. 30 1. First develop ability to do something 2. Build experience and gradually transform the ability into a core competence and proven capability 3. Continue to refine and polish the competence/capability, striving to perform the activity better than rivals, thereby turning the core competence into a distinctive competence and providing a path to competitive advantage! Three-Stage Process of Developing Competencies and Capabilities

31. 31 Develop ability to do something consistently well and at acceptable cost Select people with relevant skills/experience Broaden or expandindividual abilities as needed Mold efforts and work products ofindividuals into a cooperative effortto create organizational ability Step 1 in Developing Competencies

32. 32 As experience builds and company learns how to perform the activity consistently well and at acceptable cost, transform the ability into a core competence and capability Typically, a core competence or competitive capability emerges from establishing and nurturing collaborative relationships Between individuals and groups in different departments Between a company and its strategic allies Step 2 in Developing Competencies

33. 33 If and when a company masters the activity, not just performing it really well but performing it better than rivals, the �core competence� (and now �proven capability�) becomes a Distinctive competence and Holds potential forcompetitive advantage Step 3 in Developing Competencies

34. 34 1. Competencies are bundles of skills and know-how growing from combined efforts of cross-functional departments 2. Normally, competencies emerge incrementally from various company effortsto deal effectively with market conditions 3. Leveraging competencies into competitive advantage requires concentrating more effort and talent than rivals on strengthening competencies to create valuable capabilities 4. Sustaining competitive advantage requires adjusting competencies to new conditions Managing the Process of Building Competences: Four Key Traits

35. 35 Internal development involves either Strengthening the company�s base of skills, knowledge, and intellect or Coordinating and networking the effortsof various work groups and departments Partnering with key suppliers,forming strategic alliances,or maybe even outsourcingcertain activities to specialists Buying a company that has the required capabilities and integrating these competencies into the firm�s value chain Approaches to Developing Competencies

36. 36 Competencies and capabilities mustcontinuously be modified and perhapseven replaced with new ones due to New strategic requirements Evolving market conditions Changing customer expectations Ongoing efforts to keep core competencies up-to-date can provide a basis for sustaining both Effective strategy execution and Competitive advantage Updating Competencies andCapabilities as Conditions Change

37. 37 Training plays a critical role in implementation when a firm shifts to a strategy requiring different Skills or core competencies Competitive capabilities Managerial approaches Operating methods Types of training approaches Internal �universities� Orientation sessions for new employees Tuition reimbursement programs Online training courses Strategic Role of Employee Training

38. 38 Competitive Advantage Potentialof Competencies and Capabilities

39. 39 Execution-Related Aspects of Organizing Work Efforts Few hard and fast rules for organizing One Big Rule: Role and purpose of organization structure is to support and facilitate good strategy execution! Each firm�s structure is idiosyncratic, reflecting Prior arrangements and internal politics Executive judgments and preferences about how to arrange reporting relationships How best to integrate and coordinate work effort of different work groups and departments

40. 40 Structuring the Work Effort to Promote Successful Strategy Execution

41. 41 Step 1: Decide Which Value Chain Activities to Perform Internally and Which to Outsource Involves deciding which activities areessential to strategic success Most strategies entail certain crucial business processes or activities that must be performed exceedingly well or in closely coordinated fashion if the strategy is to be executed with real proficiency These processes/activities usually need to be performed internally Other activities, such as routine administrative housekeeping and some support functions, may becandidates for outsourcing

42. 42 Determining Strategy-Critical Activities: Issues to Consider 1. What functions or business processeshave to be performed extra well or intimely fashion to achieve competitive advantage? 2. In what value-chain activities wouldpoor execution seriously impairstrategic success?

43. 43 A company improves its chances for outclassing rivals in Performing strategy-critical activities and Turning a core competence into a distinctive competence Streamlining of internal operations that flows from outsourcing acts to Decrease internal bureaucracies Flatten organization structure Speed decision-making Increase competitive responsiveness Partnerships can add to a company�s arsenal of capabilities and contribute to better strategy execution Potential Advantages ofOutsourcing Non-Critical Activities

44. 44 Appeal of Outsourcing Outsourcing non-critical activities allows a firm to concentrate its energies and resources on those value-chain activities where it Can create unique value Can be best in the industry Needs direct control to Build core competencies Achieve competitive advantage Manage key customer-supplier-distributor relationships

45. 45 Potential Advantages of Partnering By building, improving, and then leveraging partnerships, a firm enhances its overall capabilities and builds resource strengths that Deliver value to customers Rivals can�t quite match Consequently pave the wayfor competitive success

46. 46 Dangers of Outsourcing A company must guard against hollowing out its knowledge base and capabilities Way to guard against pitfalls of outsourcing Avoid sourcing key components from a single supplier Use two or three suppliers to minimizedependence on any one supplier Regularly evaluate suppliers Work closely with key suppliers

47. 47 Assign managers of strategy-critical activities a visible, influential position Avoid fragmenting responsibility for strategy-critical activities across many departments Provide coordinating linkages between related work groups Meld into a valuablecompetitive capability Step 2: Make Strategy-CriticalActivities the Main Building Blocks

48. 48 What Types of OrganizationalStructures Fit Which Strategies? A company operating in one business Functional department structure A company with operations in various parts of the world Geographic organizational units A vertically integrated company Divisional organizational structure A diversified company Individual business units, with each business unit operating as independent profit center

49. 49 In a centralized structure Top managers retain authorityfor most decisions In a decentralized structure Managers and employees areempowered to make decisions Trend in most companies Shift from authoritarian to decentralizedstructures stressing empowerment Step 3: Determine How MuchAuthority to Delegate to Whom

50. 50 Advantages and Disadvantages of Centralized versus Decentralized Decision Making

51. 51 Characteristics ofCentralized Decision Making Top executives retain authority For most strategic and operating decisions and Keep a tight rein on lower-level managers Minimal discretionary authority is granted to Frontline supervisors Rank-and-file employees Key advantage � Tight control by topmanagers fixes accountability Disadvantages Lengthens response time to changing conditions Does not encourage responsibility among lower-level managers and employees Discourages lower-level managers and employees from exercising initiative

52. 52 Advantages of a Decentralized Structure Creates a more horizontal structurewith fewer management layers Managers and employees developtheir own answers and action plans Make decisions in their areas of responsibility Held accountable for results Shortens organizational response times and spurs New ideas Creative thinking and innovation Greater involvement of managers and employees Jobs can be defined more broadly Fewer managers are needed Electronic communication systems provide quick, direct access to data Genuine gains in morale and productivity

53. 53 Place limits on authority empowered employees can exercise Hold people accountable for their decisions Institute compensation incentives that reward employees for doing their jobs in a manner contributing to good company performance Create a corporate culture wherethere�s strong peer pressure onemployees to act responsibly Maintaining Control ina Decentralized Structure

54. 54 Classic method of coordinating activities � Have related units report to single manager Upper-level managers have cloutto coordinate efforts of their units Support activities should bewoven into structure to Maximize performance of primary activities Contain costs of support activities Formal reporting relationships often need to be supplemented to facilitate coordination Step 4: Provide for InternalCross-Unit Coordination

55. 55 Guard Against FunctionalDesigns That Fragment Activities Scattering pieces of critical business processes across several specialized departments results in Many hand-offs which Lengthens completion time Drives up administrative costs Increases risk of detailsfalling through the cracks Obsession with activity rather than result Solution ? Business process reengineering Involves pulling strategy-critical processes from functional departments to create process departments or cross-functional work groups

56. 56 Examples of Fragmented Strategy-Critical Activities Filling customer orders Speeding new products to market Improving product quality Supply chain management Building capability to conductbusiness via the Internet Obtaining feedback from customers, making product modifications to meet their needs

57. 57 Cross-functional task forces Dual reporting relationships Informal networking Voluntary cooperation Incentive compensation tiedto group performance Teamwork and cross-departmental cooperation Coordinating Mechanisms to Supplement the Basic Organization Structure

58. 58 Step 5: Provide forCollaboration With Outsiders Need multiple ties at multiple levels to ensure Communication Coordination and control Find ways to produce collaborativeefforts to enhance firm�s capabilitiesand resource strengths While collaborative relationshipspresent opportunities, nothingvaluable is realized until therelationship develops into an enginefor better organizational performance

59. 59 Get right people together Promote good rapport See plans for specific activitiesare developed and implemented Help adjust internal procedures and communication systems to Iron out operating dissimilarities Nurture interpersonal ties Roles of Relationship ManagersWith Strategic Partners

60. 60 Current Organizational Trends Numerous companies have completedthe task of remodeling traditional, hierarchical structures built on Functional specialization and Centralized authority Corporate downsizing movement in thelate 1980s and early 1990s was aimed at Recasting authoritarian, pyramidalorganizational structures Into flatter, decentralized structures

61. 61 Centralized or authoritarian structures have often turned out to be a liability where Customer preferences shift fromstandardized to customized products Product life-cycles grow shorter Flexible manufacturing replaces mass production Customers want to be treated as individuals Pace of technological change accelerates Market conditions are fluid Drawbacks of CentralizedAuthoritarian Structures

62. 62 Organizational Structures ofthe Future: Overall Themes Revolutionary changes in how work is organized have been triggered by New strategic priorities Rapidly shifting competitive conditions Tools of organizational design include Empowered managers and workers Reengineered work processes Self-directed work teams Rapid incorporation of Internettechnology Networking with outsiders

63. 63 Characteristics ofOrganizations of the Future Extensive use of Internet technologyand e-commerce business practices Fewer barriers between Different vertical ranks Functions and disciplines Units in different geographic locations Company and its suppliers, distributors,strategic allies, and customers Capacity for change and rapid learning Collaborative efforts among people in different functions and geographic locations Assembling work teams including more members dispersed over a wider geographic area

64. 64 Strategy Implementation Balanced Scorecard

65. 65

66. 66

67. 67

68. 68 The Balanced Scorecard Links Vision and Strategy to Employees� Everyday Actions

69. 69 The Principles of a Strategy-Focused Organization

70. 70

71. 71 The Principles of a Strategy-Focused Organization

72. 72

73. 73 The Complete Balanced Scorecard Strategy Map

74. 74 Mobil NAM&R Strategy Map

75. 75

76. 76

77. 77

78. 78

79. 79

80. 80

81. 81

82. 82

83. 83

84. 84

85. 85

86. 86

87. 87 Link and Align the Organization around its strategy

88. 88

89. 89

90. 90 Using the BSC to Link Strategy to Operational Management

91. 91 Reporting and Feedback: Monthly Scorecard Summary

92. 92 Effective Strategic Management Is Based Upon a �Double Loop� Learning Approach Test hypotheses about your strategy Assess changes in the environment Identify emerging strategies

93. 93

94. 94